Superannuation changes set to affect high income earners

Federal Treasurer Wayne Swan has today ended weeks of
speculation by announcing a number of important amendments to
superannuation laws, which will affect high income earners.

Key points

The government will impose a cap of $100,000 on the current tax
exemption that applies to superannuation earnings generated by
arrangements such as pensions and annuities. Any earnings in excess
of this amount will be taxed at a rate of 15 per cent. This measure
will narrow the differential between the tax treatment of pensions
and annuities and the rates of taxation that apply to earnings in
the accumulation phase of superannuation, which (in most cases)
will continue to be taxed at 15 per cent.

The removal of tax free treatment for earnings derived from
sources such as pensions and annuities will only affect those
persons who have assets in excess of $2 million.

The $100,000 cap will be indexed according to the CPI Rate and
will increase in $10,000 increments.

These changes will operate in addition to those delivered in
the 2012/2013 Federal Budget, which included an increase to the tax
rate on superannuation contributions from 15 per cent to 30 per
cent for those persons earning in excess of $300,000.

The government will introduce an 'excess contributions'
concession that is capped at $35,000 and will apply to all
taxpayers (subject only to age restrictions). Contributions to
superannuation funds in excess of $35,000 will be taxed at the
individual's marginal tax rate (plus interest on the period between
accrual of the liability and collection by the ATO).

Withdrawals from superannuation funds will remain tax free for
those persons aged over 60 years.

Impact

Overall, those taxpayers who attract the top marginal rate are
likely to have a slightly higher tax liability under the new
superannuation regime. Taxpayers who plan to make 'excess
contributions' to their superannuation fund or who have structured
their affairs to take advantage of tax concessions applying to
arrangements such as pensions and annuities should be aware of the
new caps and consider adjusting their investment strategy
accordingly.